SINGAPORE, Dec 14 (Reuters) - Brent crude rose above $108 a
barrel on Friday on a brighter economic outlook for China, the
world's second largest oil consumer, but worries about the
economic impact of a possible U.S. fiscal crisis capped price
gains.

Growth in China's vast manufacturing sector picked up in
December, adding to other data that pointed to a gradual
economic recovery that could boost fuel demand. Employment in
the United States and retail sales also improved, indicating
that its economic recovery may also be picking up.

Brent crude is set to eke out its first weekly gain
in three weeks. The January contract, which expires later on
Friday, rose 37 cents to $108.28 a barrel by 0322 GMT. U.S.
crude for January delivery was up 53 cents to $86.42.

"We're seeing positive PMI, industrial data and they are all
pointing to the direction of an economic recovery," said Sijin
Cheng, a commodities analyst at Barclays Capital.

"The underlying demand is going to improve gradually."

The HSBC flash purchasing managers' index for December rose
to 50.9, a 14-month high. Data released earlier this week showed
that China's November crude imports matched the third highest on
record as new refining units started operations.

Chinese officials meeting this weekend are expected to
maintain next year the 2012 GDP growth target of 7.5 percent.

In the United States, stalled talks in Washington to avert
the "fiscal cliff" of steep tax increases and spending cuts
overshadowed improvements in jobs data and retail sales.

Frustration mounted over the recent lack of progress in
negotiations between the Democrats and the Republicans as the
year-end deadline loomed.

"There's just more headline policy risk for the time being,"
Cheng said, adding that this would create volatility in oil
prices.

On crude supply, the Organization of the Petroleum Exporting
Countries (OPEC) agreed on Wednesday to maintain its oil output
target of 30 million barrels per day (bpd), a production level
the group exceeded in November by 800,000 bpd.

OPEC is relaxed about the prospect of rising inventories in
the first half of next year, the group's secretary general said
on Thursday, so long as oil prices avoid extreme moves from
their current acceptable level.

Iraq has said other OPEC producers should shoulder the
burden of output cuts in the event a reduction in supply is
required.

But the second largest producer after Saudi Arabia is
falling behind production targets as logistical bottlenecks and
weak infrastructure hampered investors' ability to ramp up
output.

Oil major BP is close to reaching a deal with Iraq to
cut the final production target for the supergiant Rumaila
oilfield to between 1.8 million and 2.2 million bpd, down from
2.85 million bpd agreed in 2009.

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